Review of REC Trading-September 2011

Trade session this month again brought a pleasant surprise for sellers with REC prices rising to Rs.2300/REC about 30% w.r.t last month.As the second quarter ended, buyers might have tried to secure RECs and limit their liabilities against future price rise which seems evident.
Market has picked up a great momentum and the same is reflected from today’s turnover which just crossed about Rs. 100Million mark for the first time!! We can expect REC market to mature much faster than anticipated as it appears from last few trades that the liquidity crunch from buy side may not remain a major concern at the current sale side participation.

As per our understanding form the trade session, the reason for high price during this trade session could be the Quarter 2 ending as obligated entities might have tried to secure RECs to ensure their quarterly RPO compliance targets are met. States like Gujarat, Chhattisgarh and Maharashtra et. all have mandated state nodal agencies to report quarterly compliance status to the state commission. This effect is very evident from the fact that this month, even though very high number of RECs available for sale compared to last month, the price rose. Comparative price chart is shown inn the figure below.

Maharashtra Cross-Subsidy Declared

The ongoing cross-subsidy issue in Maharashtra, which was also the subject of a Supreme Court judgement recently, seems to have been resolved.

MERC came out with an order on the subject on September 9.

The highlights are:

Cross-subsidy (CSS) has been determined as follows:

- MSEDCL: HT Categories – Rs 0.21 unit to Rs 3.97 per unit. (the higher amount is for temporary connections; the majority of industrial consumers will face a CSS of 21 paise to 92 paise)
- RInfra-D: HT Categories – Rs 0.26 per unit to Rs 2.79 per unit.
- TPC-D: HT Categories (Only for Temporary Consumer) – Rs 2.58 per unit to Rs 2.81 per unit.

The order further notes that open access transactions from Renewable Energy will attract a cross-subsidy of 25% of the applicable charges. (This is great news for several wind and biomass producers, who may face CSS of 5 paise to 23 paise only, as against the earlier demand by MSEDCL of 80 paise)

Another interesting point is that MERC study suggests that despite the CSS, industrial consumers stand to gain “about Rs 1.47 per unit” from open access.

The order is available here. Also see Business Standard article on the subject here.

REC Trading Update – August 2011

In August’s REC trade, both prices and demand volume increased significantly from last month.

REC demand last month was about 96,000, while it almost doubled to over 183,000 in August. This is perhaps the most significant indicator for the REC markets, as it points to a strong expectation of RPO enforcement by market participants this year. Another important thing to note is that the demand in this month alone was more than the total RECs issued till date, which is approximately 124,000.With demand expected to increase significantly as we approach March 2012, the demand-supply gap is only expected to widen, particularly as more captive and open access generators join the market.

 

 

REC prices also increased sharply, mainly as a result of the large demand-supply gap (demand this month was 183,000, supply was 58,000). The clearing price at IEX was Rs 1,800/ REC, up from Rs 1,555/ REC in July. This represents an increase of about 16%. This upward trend can be expected to continue.

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